Thailand Central Bank Keeps Key Rate Unchanged

Thailand's central bank kept its interest rate unchanged on Wednesday, as policymakers assessed that the economy continued to gain traction despite signs of moderation in external demand.

The Monetary Policy Committee of Bank of Thailand voted 4-3 to hold the policy rate at 1.50 percent. The decision was in line with economists' expectations.

"The Committee viewed that monetary policy should remain accommodative, although the need for currently accommodative monetary policy would be gradually reduced," the bank said in a statement.

The split in the monetary policy committee widened again this month with three members seeking a quarter-point hike to 1.75 percent.

The three members observed that the continued economic expansion was sufficiently robust and that prolonged monetary accommodation induced households and businesses to underestimate potential changes in financial conditions. They assessed that a rate hike is necessary in order to curb financial stability risks that are likely to affect the sustainability of economic growth over the longer term.

The bank noted that the economy has continued to gain traction despite a slowdown in export growth driven by trade protectionism measures between the US and China, a slowdown of the electronics cycles, and trading partner countries' weather conditions.

Core inflation was forecast to rise broadly in line with the previous assessment given the gradually rising demand-pull inflationary pressures. Policymakers viewed that structural changes contributed to more persistent inflation than in the past.

The central bank expects the baht to remain volatile and said it would continue to closely monitor exchange rate developments.

Capital Economics noted that the Thailand central bank would retain its hawkish bias given growing support for a rate hike within the committee, although any tightening is likely to be very gradual.

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